Let’s say you paid $100,000 for a house by putting down 40 percent in cash and borrowing 60 percent. If you sold the house immediately for $120,000, your profit would be $20,000, or 50 percent of the $40,000 in cash you initially put down. Alternatively, if you paid for the same house by putting down only $20,000 in cash and borrowing the remaining $80,000, then the return on your original $20,000 investment would double to 100 percent. Taking on debt, assuming you can pay it back, can substantially increase your return on equity.
